PCCW has decided to abandon its privatisation plan by letting the buyback offer lapse. On the other hand, Richard Li has told Bloomberg that he hasn’t decided whether he would appeal the ruling made by the Court of Appeal. As a result, PCCW share price dropped 13% today.
On another note, PCCW has declared a special dividend of HKD 1.3 per share. This is good news for minority shareholders as they are actually getting something at the end.
A very dramatic ending. The Appeal Court has blocked the buyout by Richard Li. It seemed like the judges have turned 180 degrees against Richard Li and favored the minority shareholders and the SEC during the course of the appeal. We will know soon whether Richard Li will appeal the case or not.
What will minority shareholders gain actually? Share price will probably drop quite a lot when trading is resumed in the next few days. And I believe the share price will have big upward resistance because of all the negative publicity it has got. And if Richard Li appeals, then this case can drag on for a long time and this will again create upward resistance on the stock. It is a lose-lose situation for Richard Li and minority shareholders.
Mainly because PCCW stressed that timing is in essence here and the takeover can be derailed if the takeover didn’t follow the original time frame, the court is working over the weekend this time! The court will re-convene Saturday (18 April 2009) morning. However, due to this constraint in time, the new judge, Anthony Rogers, is not accepting any new evidence from the SFC. With no new evidence being admitted, it basically means that the minority shareholders and the SFC will need to convince Judge Rogers that previous interpretation made by Judge Kwan was wrong. I would think that it is quite difficult given judges probably won’t make a fool of themselves by having two completely different conclusions based on the same set of evidence.
I have a feeling that the appeal will fail and the PCCW privatisation will be allowed again by the court tomorrow morning (or early next week).
The High Court of Hong Kong has approved the PCCW privatisation transaction. Judge Kwan found that the alleged vote rigging is not substantiated by evidence.
On the other hand, the court has allowed the SFC to appeal the ruling. In essence, the PCCW privatisation probably won’t materialise for at least a short while.
The court will announce its decision on PCCW privatisation next Monday. Media has been wondering who the secret persons are in paying for the lawyers representing the minority shareholders. It has been estimated that the legal cost for two day court case can easily be a few million hong kong dollar, given the high caliber of the legal teams involved.
The secret persons probably have some personal grudge on Richard Li? According to Apple Daily, the secret person and the minority shareholders are linked by Long Hair Leung Kwok Hung. Furthermore, it reveals that one of the secret persons is Mr. Chong Wing Cheung, a mentor of “Ah Lek” Chan Pak Cheung. And on radio tonight, some people thought that the boss of the Emperor Group, Yeung Sau Sing, may be one of the secret persons. Maybe the Isabella Leong-Richard Li saga still pisses Mr. Yeung off.
In today’s newspapers, billionaire Joseph Lau Luen-Hung, chairman of Chinese Estates, said that he is sick of a small group of people who are only very small shareholders and making a lot of noise on the privatisation. Also, he claimed that he knows who is fooling around behind the PCCW privatisation scandal, and that the motivation behind may not be business-related… it can be related to a fight for a wife, a girl friend, etc… Sounds very mysterious to me and a lot of the readers, but I suppose Richard Li should know what he is talking about!
There are currently three companies that are seeking to be privatised by their major shareholders.
1. Shaw Brothers (80 HK): This has just been approved by minority shareholders. Current price is 13.20, and the offer price is 13.35 (1.1% premium)
2. Crocodile (122 HK): Current Price is 0.385 and the offer price is 0.40 (3.9% premium). Frankly I don’t see any problem for it to get all the necessary approval.
3. Nam Tai (2633 HK): Current Price is 1.42 and the offer price is 1.50 (5.6% premium). David Webb has been urging shareholders to accept this bid (http://www.webb-site.com/articles/nteep2.htm), so I believe this again will pass without much problem.
I believe there should be more and more companies getting privatised because of their depressed share prices which went down a lot together with the general market. Investors should pay attention to this space and make some easy profits!
A well known local clothes retailer - Crocodile Garments Limited (0122) - has announced that the major shareholder (the Lam family in Lai Sun Group) will buy back all existing shares from independent shareholders at a price of HKD 0.40. Because of this news, Crocodile jumped 87% today to HKD 0.38.
The total amount for the buyback should be around HKD 119 million, and the offeror will finance the cash consideration through bank borrowings.
Personally, I believe the buy back makes sense for the major shareholder as the offered price, although it is already 90% more than the traded price before the announcement, is still 50% below the net asset value per share of Crocodile (even if there is significant writedown of their assets and real estate at the end of this financial year, the offered price should still be below the net asset value per share).
This buyback plan is scheduled to complete by 31 August 2009. What are the risks of this deal not getting completed?
1. Risk of independent shareholders not approving this buyback - I would think the chance of this is slim. (Even the PCCW privatisation got approved in their EGM!)
2. The major shareholders unable to procure enough funding - highly unlikely since the major shareholders are the people behind Lai Sun Group
3. Political risk - personally I believe since this is a relatively small company in terms of capitalization and is less high profile than PCCW, I would believe the chance of it getting criticized in the public is very less.
4. Delay in completing the transaction - To me it seems to be a quite straightforward deal without a lot of counterparties involved. So I believe the risk of this happening is minimal.
Please let me know if I have left out any major risk that needs to be addressed.
I would recommend buying this stock now below or at HKD 0.38. Then by the time this buyout is completed, you will earn a decent 5% return in less than one year.
The privatisation has been delayed for one week as the Directions Hearing – a procedural hearing according to the announcement made by PCCW – has been postponed from 17 Feb 2009 to 24 Feb 2009. The most important court hearing – the High Court hearing to sanction the privatisation – scheduled originally for 24 Feb 2009, would now need to move further down the timetable. The chance of the privatisation being successfully completed seems to be lower as time progresses. Also, following Friday’s drop, the share price has dropped 17 cents today to HK$ 3.85.
There are just too many uncertainties to this privatisation: SFC’s investigation on the manipulation of the vote result in the shareholder meeting, the uproar of some minority shareholders, and the negative impression surrounding PCCW in most newspapers and magazines over the years since the dot-com bust: all have made Richard Li’s plan to privatise the company a harder feat than it originally seemed to be.
Below are the uncertainties surrounding the PCCW buyout / privatisation:
1) the High Court will need to approve the buyout. This is scheduled for 24 February 2009.
2) On whether the High Court will approve or not, this depends on whether the regulator, the SFC, has finished investigating the vote-rigging issue or not. The SFC can petition to the High Cour to veto the buyout if it discovers any evidence of vote-rigging in the shareholder meeting.
3) Will the SFC finish its investigation before 24 February? If not, will the High Court delay its ruling until the full SFC investigation is complete?
4) In an open forum last Sunday, some minority shareholders protested that the management has largely ignored the minority shareholders in the shareholder meeting. This theme of “majority shareholders bullying minority shareholders” has been a popular topic in the mass media lately. The voice of the minority shareholders is further amplified by some Legislative Council members who have decided to step up and try to stop this privatisation. There probably will be uproar if government approves the privatisation as originally planned on 24 February 2009.
For these 4 reasons, I believe that this privatisation will not get approved by end of February. It will take some time before the share price will rise near HKD 4.5 (the offer price). So my stock recommendation is Hold.
